Profit & Loss - March 2010

The Times They Are A-Changin’

Managing Business Change

by Jeff Breeden

    By now, the majority of businesses will have their books and records together from 2009, and are ready to meet with a CPA.  Many of have already signed tax returns and are looking into the future, wondering what changes Congress might throw at small businesses as the recovery slowly moves along.  Change was the message of the last election and it is something everyone deals with everyday. Therefore, it’s a good idea periodically to ask how well a organization deals with change

    Since most businesses haven’t been through a recession of this magnitude before, it might seem like broad, sweeping change is the only way to survive.  While this might be true for certain industries, for the majority of business, change is often better handled in smaller, incremental steps.  This approach allows a business to gather the input of front-line employees, measure the impact of each new process and build on its success.

    Employees are the face of every company to its customers.  Earlier this year, CBS television launched a show called Undercover Boss.  In the first episode, Waste Management President and COO Larry O’Donnell went undercover and worked as a front line employee, next to regular current employees.  As he rode on the back of the residential trash pickup truck, he witnessed the customer relationships his drivers were building.  He saw firsthand how these relationships were negatively impacted by his directives for more houses per hour and by other corporate productivity targets.  The numbers can’t tell the whole story.  Without input from those who do the jobs, a business simply doesn’t have all the information needed to manage successful change.  

    It’s also true that including the people who will actually have to implement any change can help with the second, and most important part of change – measuring the results.  No matter what a company is trying to change, it needs to determine a way to know if the change is working.  It could be customer or employee satisfaction, reduced error or wastage rate, number of on-time deliveries or any number of other measures.  Although a successful change should eventually show up on the bottom line, that measure is too far removed from the change to be a good measure.  A change needs to be evaluated on a much more local level so it can be seen and shared with the team.

    Finally, if a business can demonstrate the success of the first change, a second one will be easier to implement.  The companies’ team will begin to understand how their actions impact the rest of the company.  Consequently, it often follows that successful change is contagious.  Employees will develop a keen eye for choke points and waste in their areas of responsibility.  No one likes to feel like their job doesn’t matter or that it is made up of wasted effort.  By removing waste and demonstrating how the pieces fit together, it gives employees an understanding of how their efforts build a stronger company.  

    For example, most businesses would like to improve cash flow.  What kind of response would there be if an employee were asked to improve cash flow?  Likely, a company will get a much better response by showing accounts receivable people how reducing the time from the completion of the sale to collecting the cash can be done.  What if there are different people working in the billing and the collections departments?  Billers could be tracking the number of days between a sale and the bill being mailed with a goal to reduce the number of days.  Collections could be monitoring days that receivables are outstanding or the percent of accounts over 60 days.  

    How can a purchasing manager help?  If he holds off buying until inventory is zero, the sales team has problems delivering orders on time.  If he buys everything he can, cash will be tied up in inventory.  By determining optimum reorder points, cash can be efficiently used.  Everyone on the team has an impact.

    Helping employees grasp how their activities can help the company succeed is key to change.  By giving targets that front line employees can see and influence, it gives them the authority and the responsibility to change.

    Change is hard – but that is no reason not to do it.  Why did you start your business?  Probably because you had an idea for doing something better.  A company is almost certainly founded on change.  As it grows and matures, don’t lose sight of the reason it was founded.

Jeff Breeden
Jeff Breeden, CPA, CVA, CSPM is a partner at Stewart, Archibald & Barney, LLP.